In this article, we discuss the 10 best Roth IRA stocks to buy according to hedge funds.
Roth IRA accounts have exploded in popularity across the United States as more and more people realize the prudence of financial planning. Although Individual Retirement Accounts (IRAs) have existed for years, Roth IRAs — accounts whose contributions are taxed but the post-retirement withdrawals aren’t — were established through the Taxpayer Relief Act of 1997. There are some rules for tax-free privileges though. These include holding the account for at least five years and being at least six months shy of the retirement age of 60.
According to a study by Investment Company Institute, a global association of regulated funds, in 2017, close to 35% of households in the US owned some type of an IRA. Of these, roughly 35 million people, or nearly 27% of households, owned a traditional IRA while close to 20% owned a Roth IRA. The numbers indicate the incredible success of these accounts since they were first introduced. Amid the COVID-19 job crisis, many more Americans have come to realize the importance of savings and more and more people are saving through Roth IRAs.
However, to maximize the true potential of these accounts, like the Peter Thiel investment that earned him $5 billion in tax free withdrawals, owners of these accounts should look towards reliable and long-term equity investing as a way of growing their savings. Some of the best stocks to consider for Roth IRA right now include Microsoft Corporation (NASDAQ:MSFT), Mastercard Incorporated (NYSE:MA), and Apple Inc. (NASDAQ:AAPL), among others discussed in detail below.
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Our Methodology
Here is our list of the 10 best Roth IRA stocks to buy according to hedge funds. The companies that have a reliable dividend history with healthy yields were preferred for the list. The growth potential of the stocks in the decades ahead based on their basic business fundamentals was also considered.
The hedge fund sentiment around each stock was gauged using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Best Roth IRA Stocks To Buy According To Hedge Funds
10. Moody’s Corporation (NYSE:MCO)
Number of Hedge Fund Holders: 44
On October 18, BMO Capital raised the price target on Moody’s Corporation (NYSE:MCO) stock to $423 from $415, maintaining an Outperform rating on the shares, underlining that the debt issuance trends were stronger than expected.
At the end of the second quarter of 2021, 44 hedge funds in the database of Insider Monkey held stakes worth $16 billion in Moody’s Corporation (NYSE:MCO), down from 55 in the previous quarter worth $13 billion.
In its Q4 2020 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Moody’s Corporation (NYSE:MCO) was one of them. Here is what the fund said:
“Moody’s Corporation provides credit ratings, financial intelligence, and analytical tools to assist businesses in making decisions. Moody’s reported excellent financial results due to continued growth in rated debt issuance. However, the stock detracted on investor expectations that issuance trends will moderate into 2021.The announced retirement of long-time CEO Ray McDaniel may have also weighed on sentiment. We continue to own the stock due to our views of the company’s long runway for growth and strong competitive advantages.”
9. Altria Group, Inc. (NYSE:MO)
Number of Hedge Fund Holders: 47
Jefferies analyst Owen Bennett recently reiterated a Buy rating on Altria Group, Inc. (NYSE:MO) stock but lowered the price target to $55 from $58, noting that the operational performance of the firm was not very “inspiring” before the third quarter results. Meanwhile, Morgan Stanley maintained an Overweight rating on the stock with a price target of $52. Altria has rallied on the back of a report that cigarette sales increased for the first time in twenty years in 2020, rising 0.4% year-on-year to 203.7 billion units sold.
On August 26, Altria Group, Inc. (NYSE:MO) declared a quarterly dividend of $0.90 per share, an increase of 4.7% compared to the previous dividend of $0.86 per share. The forward yield was 7.39%.
At the end of the second quarter of 2021, 47 hedge funds in the database of Insider Monkey held stakes worth $948 million in Altria Group, Inc. (NYSE:MO), up from 38 in the previous quarter worth $1.1 billion.
Along with Microsoft Corporation (NASDAQ:MSFT), Mastercard Incorporated (NYSE:MA), and Apple Inc. (NASDAQ:AAPL), Altria Group, Inc. (NYSE:MO) is one of the stocks that hedge funds are buying.
In its Q2 2021 investor letter, Broyhill Asset Management, an asset management firm, highlighted a few stocks and Altria Group, Inc. (NYSE:MO) was one of them. Here is what the fund said:
“Altria (MO) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 20%. We shared our thoughts on these regulations during the quarter, which are available here.
MO Valuation. MO is up ~ 18% YTD (even accounting for the recent sell-off). We expect MO to generate close to $5 in annual FCF per share over the next few years, putting the stock at ~ 10x, which is less than half the market’s multiple today. Over the last decade, shares have traded at an average multiple of 15x and within a range of ~ 10x – 20x (+/-1 standard deviation). The stock yields 7.2% at the current price, close to a 6% premium to treasuries. Historically, shares have traded closer to a 3% premium to the 10Y, which would imply a ~ $75 share price.”
8. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 62
The Coca-Cola Company (NYSE:KO) is one of the most recognizable brand names in the world and the business fundamentals of the firm reflect this. In earnings results for the third quarter, posted on October 26, the company reported earnings per share of $0.65, beating market predictions by $0.07. The revenue over the period was $10 billion, up close to 15% compared to the revenue between June and September last year and beating estimates by $280 million. The global unit case volume rose 6% during the time.
Guggenheim analyst Laurent Grandet recently raised the price target on The Coca-Cola Company (NYSE:KO) stock to $175 from $171 and kept a Buy rating on the shares, noting that the firm still possessed potential to drive growth and margin upside despite tough competition.
Among the hedge funds being tracked by Insider Monkey, Nebraska-based firm Berkshire Hathaway is a leading shareholder in The Coca-Cola Company (NYSE:KO) with 400 million shares worth more than $21 billion.
7. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 63
Verizon Communications Inc. (NYSE:VZ) pays a regular and healthy dividend to shareholders since the business is built on solid foundations. In September, the company declared a quarterly dividend of $0.64 per share, an increase of 2% from the previous dividend of $0.6275. The forward yield was 4.66%. In the third quarter earnings, the firm beat market expectations on earnings per share by $0.05 and raised the full-year profit guidance. It has also recently secured a $78 million government contract.
On October 21, Cowen analyst Colby Synesael raised the price target on Verizon Communications Inc. (NYSE: VZ) stock to $71 from $68 and maintained an Outperform rating, underlining that the stock appeared meaningfully undervalued given recent earnings results.
At the end of the second quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $10.9 billion in Verizon Communications Inc. (NYSE:VZ), down from 69 in the previous quarter worth $11.3 billion.
Microsoft Corporation (NASDAQ:MSFT), Mastercard Incorporated (NYSE:MA), and Apple Inc. (NASDAQ:AAPL) are some of the top stocks to buy and hold right now, in addition to Verizon Communications Inc. (NYSE: VZ).
In its Q1 2021 investor letter, Miller/Howard Investments, an asset management firm, highlighted a few stocks and Verizon Communications Inc. (NYSE:VZ) was one of them. Here is what the fund said:
“We sold Verizon (VZ) based on concerns over how much they might spend in ongoing spectrum auctions. Management may legitimately view spending billions of dollars to expand their spectrum holdings as necessary, but we believe the payoff will be slow and will make it challenging to grow the dividend at a good pace.”
6. Charter Communications, Inc. (NASDAQ:CHTR)
Number of Hedge Fund Holders: 75
Charter Communications, Inc. (NASDAQ:CHTR) stock was recently named among a list of high conviction picks by investment advisory UBS. The list includes firms with strong pricing power that can weather the margin pressures sweeping across the market due to the post-pandemic demand and supply chain issues. In August, Pivotal had assigned the stock a Street High price target of $1,000.
Charter Communications, Inc. (NASDAQ:CHTR) stock has been soaring since a report from earlier this month that claims that Major League Baseball is in the hunt for partners as it aims to launch a streaming service for audiences across the world.
At the end of the second quarter of 2021, 75 hedge funds in the database of Insider Monkey held stakes worth $19 billion in Charter Communications, Inc. (NASDAQ:CHTR), up from 74 the preceding quarter worth $16 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Charter Communications, Inc. (NASDAQ:CHTR) was one of them. Here is what the fund said:
“The portfolio’s quality bias and valuation discipline have generated compelling returns over time with typically strong relative results in more challenging environments as it did through the first three quarters of 2020. However, that same quality bias tends to create a more challenging relative performance environment for the Strategy during periods of sharp economic acceleration, which tend to benefit stocks that are more commodity linked or of lower quality. This has been the case during the vaccine- and stimulus-driven rally experienced late last year and during the most recent quarter. Sectors that lagged in the quarter included communication services, where Charter trailed after generating robust returns earlier in the recovery.”
5. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 138
Apple Inc. (NASDAQ:AAPL) is perhaps the most famous technology company in the world. It recently announced a new lineup of laptops and phones. Both products are expected to drive the revenue for the company through the holiday season into the new year. However, supply chain issues could hit a part of the sales, according to market analysts. The company has also announced that it will be adding a much-requested health technology to the new AirPods, a flagship product of the firm.
On October 19, investment advisory DA Davidson raised the price target on Apple Inc. (NASDAQ:AAPL) stock to $175 from $167 and kept a Buy rating on the shares, underlining that the products of the firm had benefited from the pandemic.
At the end of the second quarter of 2021, 138 hedge funds in the database of Insider Monkey held stakes worth $145 billion in Apple Inc. (NASDAQ:AAPL), up from 127 in the preceding quarter worth $130 billion.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
4. PayPal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 143
Keefe Bruyette analyst Sanjay Sakhrani maintained an Outperform rating on PayPal Holdings, Inc. (NASDAQ:PYPL) stock with a price target of $340, highlighting that a potential purchase of Pinterest by the company could make sense for the firm in the context of a long-term vision of a super application. Other investment advisors like Cowen and Baird also took this point of view on the acquisition. The company purchased Paidy, a Japanese payments platform, for $2.7 billion last month.
PayPal Holdings, Inc. (NASDAQ:PYPL) has also been exploring investments in the equity trading sector as retail trading booms across the globe. A report indicates that the first phase of the new platform will be limited to users in the US.
At the end of the second quarter of 2021, 143 hedge funds in the database of Insider Monkey held stakes worth $16.3 billion in PayPal Holdings, Inc. (NASDAQ:PYPL), the same as in the preceding quarter worth $14.7 billion.
In its Q4 2020 investor letter, Polen Capital Management, an asset management firm, highlighted a few stocks and PayPal Holdings, Inc. (NASDAQ:PYPL) was one of them. Here is what the fund said:
“For the full year 2020, one of the top performers was PayPal, which we purchased in 2019, the company continues to take market share in digital payments and has seen an acceleration in user adoption and engagement, especially within their “silver tech” or older user demographic. We expect many more years of ongoing double-digit growth from their various business segments and new initiatives.”
3. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 156
Mastercard Incorporated (NYSE:MA) is another payments firm that has solid fundamentals and could drive long-term growth for investors in years to come. The company has recently partnered with Demica, an alternative finance solutions provider, to launch a new set of payments services for the supply chain industry. It is also expanding presence in the crypto universe, extending a partnership with Bakkt, a crypto firm, to expand the access of users to cryptocurrencies and digital assets.
In August, JPMorgan analyst Tien-tsin Huang had raised the price target on Mastercard Incorporated (NYSE:MA) stock to $430 from $427, reiterating an Overweight rating and underlining that payments players were outperforming the wider market this year.
Among the hedge funds being tracked by Insider Monkey, Virginia-based investment firm Akre Capital Management is a leading shareholder in Mastercard Incorporated (NYSE:MA) with 5.8 million shares worth more than $2.1 billion.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and Mastercard Incorporated (NYSE:MA) was one of them. Here is what the fund said:
“While consumers resumed much of their spending by summer, what and how they used their Visas and Mastercards changed. For obvious reasons, people shifted to contactless payments—one of the Covid-era changes we think is permanent—and replaced travel purchases with online shopping and food delivery. Consumers spent more on their debit cards and less on their credit cards; Visa and Mastercard make more per transaction on the latter. They also make more on cross-border transactions that come mostly from international travel, which ground to a halt early in the pandemic. Visa’s and Mastercard’s earnings per share fell by 7% and 16%, respectively, compared to their usual mid-teens growth. We’re not too worried, and we think they’ll catch up nicely in the post-vaccine world. Visa’s stock returned 17.1% and Mastercard’s 20.2%.”
2. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 190
Alphabet Inc. (NASDAQ:GOOGL) owns internet search engine Google, video sharing platform YouTube and other technology-related products. The stock is an analyst and hedge fund favorite. The shares have soared by over 95% over the past twelve months. They are now trading at all-time highs and coming closer to the $3,000 per share price barrier. The company has already crossed $1.8 trillion in market capitalization.
On October 27, BMO Capital raised the price target on Alphabet Inc. (NASDAQ:GOOGL) stock to $3,200 from $3,000, keeping an Outperform rating and appreciating the earnings beat of the firm in the third quarter.
At the end of the second quarter of 2021, 190 hedge funds in the database of Insider Monkey held stakes worth $26 billion in Alphabet Inc. (NASDAQ:GOOGL), up from 185 in the preceding quarter worth $24 billion.
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 238
Microsoft Corporation (NASDAQ:MSFT) is one of the most valuable firms in the world and has been at that position for decades now. The company, while offering a solid product, keeps reinventing itself to go with the times. Presently, besides the software business, it has ventured into the cloud and artificial intelligence industries that are expected to play a key part in the future earnings growth of the firm. It also beat market estimates on earnings per share and revenue in the first fiscal quarter results posted on October 26.
Morgan Stanley analyst Keith Weiss recently raised the price target on Microsoft Corporation (NASDAQ:MSFT) stock to $364 from $331 and kept an Overweight rating on the shares, noting that the firm was well positioned across the portfolio and was driving revenue growth.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT) with 24.8 million shares worth more than $6.7 billion.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“We have written extensively about Microsoft in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. It continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and the stock continues to reflect the fundamentals.”
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Disclosure. None. 10 Best Roth IRA Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
